Euro falls to decade-low against the yen

It’s not hard for vacationing tourists to become irritated by German holiday-goers who neatly lay out their pool towels seemingly before the sun is up. And with stories emanating that Germany is rolling out a Plan B in order to shore up its bankers in the event that Greece fails to qualify for its next bailout payment, it appears that Chancellor Merkel has already unrolled the nation’s beach towels in an effort to deal with more collateral damage, which some claim will signal the break-up of the euro area in its current form. The euro has now shed 10 cents against the dollar in the space of two weeks with the second half of that decline taking just three trading sessions. While we have had our senses dulled during the last two years over the perilous health in Athens on account of European leaders pulling in the same direction, this time it looks like the head has been cut from the rose. German officials assessing the Greek books as fiscal austerity bites in to the corpse of a necrotic economy find little progress to report. The flagging Greek economy means that the nation faces the real possibility of failing to jump the hurdle this time around.

Euro –And so the single European currency unit fell sharply as the week began tumbling to its lowest since February versus the dollar and a decade low against the yen. We don’t need any data to confuse the issue on Monday to tell us that the core is holding up while the periphery continues to struggle. The reality is that German confidence in the situation is diminishing and the risks of falling in to an economic whole the world over have picked up markedly during the last several weeks. Investors sold stocks around the world and once again Monday is shaping up to be another bad session for North American equities in line with sliding European bourses. French banks saw double-digit losses as fears grew that its largest three banks would suffer an imminent downgrade at the hands of Moody’s Investor Services. The ratings agency put the banks on review in June for fear that the possibility of a Greek default was not adequately reflected in their current grade. The Greek Cabinet ushered in fresh measures to raise revenues in order to meet sky-high savings targets. This year the government must cut spending and raise revenues by €17.1 billion and by €14.9 billion in 2012. A two-year property tax was announced over the weekend while elected officials will have one-month’s salary used to plug the gap. The euro hit a low at $1.3503 before recovering to $1.3630, while it lost 0.8% against the yen to buy ¥105.00.

U.S. Dollar – The dollar feels a far better place to be according to the actions of many investors during the past couple of weeks. The President will deliver the text of his proposed $447 billion economic stimulus package to lawmakers on Monday, while we will have to wait for another week before hearing more from the Fed’s Open Market Committee on whether they have further plans to ease monetary policy. The prospect of more quantitative easing without expanding the Fed’s balance sheet is seen as a currency positive these days and has propelled the U.S. Dollar Index to a seven- month peak. Against its basket of major trading partners the greenback trades at 77.26.

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.